'A slight breather': Mortgage rates jump back above 5%, but it's not all bad news for homebuyers

30-year fixed-rate mortgages

The interest rate on a 30-year fixed mortgage is averaging 5.22%, up from 4.99%, housing finance giant Freddie Mac reported Thursday. A year ago at this time, the 30-year rate averaged 2.87%.

“Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market,” says Sam Khater, Freddie Mac’s chief economist.

The supply of homes for sale remains relatively tight, but the overall trend of rising rates is giving buyers a bit more choice after the pandemic-fueled frenzy.

“The upcoming fall season may offer an even better window of opportunity, as long as the inventory landscape continues improving,” Ratiu says.

15-year fixed-rate mortgages

The average rate for a 15-year fixed mortgage is 4.59%, Freddie Mac says. That’s up from an average of 4.26% last week and 2.15% one year ago.

Mortgage demand inched up amid last week’s lower rates. A U.S. index measuring mortgage loan application volume was up 0.2%, the Mortgage Bankers Association (MBA) reported.

The increase was driven by a rare surge in borrowers looking to refinance their home loans. Applications to purchase homes, however, declined.

“The purchase market continues to experience a slowdown, despite the strong job market,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“Activity has now fallen in five of the last six weeks, as buyers remain on the sidelines due to still-challenging affordability conditions and doubts about the strength of the economy.”

5-year adjustable-rate mortgages

The average interest rate on a five-year adjustable-rate mortgage, or ARM, is 4.43%, up from 4.25% last week.

Last year at this time the five-year ARM was averaging 2.44%.

Rates on adjustable mortgages are lower initially and then move up or down based on the prime rate.

With a 5/1 ARM, the interest rate is set for the first five years, and then it adjusts annually — sometimes going up sharply — over the remaining course of the loan.

If rates were to fall after an initial period of an ARM, a borrower could potentially refinance into a lower rate at a longer term. But there’s also the risk that rates go higher.

Is it still a seller’s market?

Following one of the tightest housing markets in history, the anemic supply of homes for sale is easing, and sellers are no longer able to name their price and call all the shots in contract negotiations.

The share of listed homes with price reductions rose to 19% in July, near 2017 levels, according to Realtor.com.

Even so, home prices across much of the country are still seeing double-digit gains. In recent months, the median price for a single-family home breached $400,000 for the first time, rising 14.2% from one year ago to $413,500, the National Association of Realtors (NAR) reports.

"Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers," says Lawrence Yun, NAR’s chief economist.

That said, year-over-year price appreciation has come down slightly, “providing well-positioned prospective buyers a small measure of welcomed relief,” Yun says.

“The recent dips in mortgage rates will bring additional buyers to market, especially in those places where home prices are still relatively affordable and where jobs are being added."